Tax Smart Real Estate Investors Podcast

Episode 354: Can Property Management Kill Your STR Loophole? (And Other Costly Mistakes)
Hosts: Hall CPA Team (Tom & Nate)
Date: November 18, 2025
Duration: Approx. 33 minutes

Overview

This episode dives into the practical tax and accounting questions facing real estate investors as year-end approaches, with a strong focus on short-term rental (STR) tax strategies, bonus depreciation deadlines, and the nuances that can trip up even savvy investors. Tom and Nate field real questions sourced from their Facebook group and insider community, emphasizing actionable advice on cost segregation, the STR loophole, managing hours for real estate professional status, and common mistakes that could derail your tax planning.

Key Discussion Points & Insights

1. Depreciation on Schedule E Rentals (02:12)

• Issue: Listener's tax preparer insists on skipping depreciation for a rental property.
• Takeaway:
  • If a property is rented full-time during the tax year, you must take depreciation—it’s not optional.
  • Not doing so is a major error by the preparer and can cause IRS issues later.
  • If your preparer refuses, "insist on finding another tax preparer." (Tom, 04:01)

2. Cost Segregation Timing for Year-End Purchases (04:41)

• Do you need to do it before year-end?
  • No. Complete the cost segregation study before filing your tax return (ideally before April 15th for individual filers).
  • Quote: "If you want to claim on 2025 tax return, you just gotta have it in hand... preferably before April 15th." (Nate, 04:41)

3. 2025 Bonus Depreciation "Weird Timing" Explained (05:29)

• Key Dates/Rules:
  • If you close before Jan 20th, 2025, you're likely stuck at 40% bonus depreciation.
  • A binding contract signed before Jan 20th (but not closed) allows for 100% bonus depreciation, if no penalties for walking away.
  • If construction begins and >10% of costs are incurred before Jan 20th, you’re also under the 40% rule—but there are technical exceptions.
  • Memorable Example: "Someone who closed on January 19th would not be eligible [for 100% bonus], someone who closed January 28th would." (Nate, 06:24)

4. Seller’s Post-Close Occupancy Impacting STR Loophole (09:19)

• Scenario: Buying STR in November, seller stays post-close briefly.
• Insight:
  • Seller occupancy post-closing counts as rental days, not personal use.
  • This can inflate your average rental duration and potentially disqualify you from STR loophole for the year.
  • "You're just going to be stuck probably with a long term or midterm rental for that year." (Nate, 10:11)

5. Short-Term Rental (STR) vs. Real Estate Professional Hours (11:14)

• Clarification: STR hours can count towards the 750-hour real estate professional (REP) test.
• Critical nuance:
  • REP status alone does not make long-term rental losses non-passive—you must also materially participate in the long-term rentals specifically (often via 500+ hours).
  • STR material participation is separate from long-term rental material participation.
  • Analogy: "It's like all bourbon is whiskey, but not all whiskey is bourbon." (Nate, 13:47)

6. Syndication Losses: When Are They Active? (15:56)

• Activating syndication losses:
  • Must qualify as a real estate professional and materially participate (500+ hours) in your personal long-term rentals.
  • Then, with a grouping election, syndication losses can be active.
  • "You always need to do that. It's not an easy test… but it is achievable." – Tom (17:57), Nate (18:31)

7. Can Property Management Kill Your STR Loophole? (18:56)

• Myth: You cannot use the STR loophole if there’s a property manager.
• Reality: It’s almost always true—it becomes nearly impossible to prove material participation if you're not self-managing due to lack of qualifying hours.
  • "Maybe 2% of cases... but 98%? Probably more like 99%. No, you're not going to be able to do that." (Nate, 18:56)

8. Kids Working For Your Real Estate Business (21:06)

• Can you pay a child under 14 for work?
  • Yes, but they can only do age-appropriate, legitimate work (e.g., cleaning, simple tasks), at a reasonable rate (minimum wage).
  • Must document, pay, and file W-2s; ideally keep it under the standard deduction (~$14,000) to make it tax-free for the child.

9. Bonus Depreciation for Condos (22:26)

• Do you get full depreciation since you “don’t own the land”?
  • No. You almost always own a fractional interest in the land, which must be allocated and not depreciated.
  • Still, the majority of the condo price can often be depreciated, but never 100%.

10. Medium-Term Rental—Substantial Services Requirement (24:23)

• Qualifying as “active” for stays over 7 days but under 30:
  • You must actually provide substantial services (e.g., daily cleaning, meal prep, concierge, laundry).
  • Key: Offering isn’t enough; services must be provided.
  • "If you, if you read it, it says they’re going to look at the continuity and the frequency... they need to actually be rendered." (Tom, 24:23)

11. Year-End Tax Planning: What Actually Matters (27:48, 29:37, 31:34)

• Top Reminders:
  • Track material participation hours now—don’t wait until January.
  • Consider “bunching” charitable donations for bigger deductions.
  • 401k and retirement contributions can move the needle.
  • Don’t force last-minute investments for the tax break—bonus depreciation isn’t disappearing soon.
    • Quote: "Don’t make bad investments just to try to get some tax benefits before year end. Take a deep breath..." (Tom, 30:49)

Notable Quotes & Memorable Moments

• Depreciation is Non-Negotiable:
  "If they insist on not taking it, then I would insist on finding another tax preparer. That’s the harsh truth right there."
  — Tom (04:01)

• STR Property Management Warning:
  "Maybe 2% of cases that I’ve seen actually can make it work... but 99%, no."
  — Nate (18:56)

• STR/REP Analogy:
  "All bourbon is whiskey, but not all whiskey is bourbon."
  — Nate comparing material participation and REP hours (13:47)

• Year-End Reassurance:
  "Take a deep breath, realize that next year, bonus depreciation still here..."
  — Tom (30:49)

Timestamps for Key Segments

• [02:12] Depreciation on Schedule E Explained
• [04:41] Cost Seg Timing for Tax Year
• [05:29] January 20th, 2025 Bonus Dep Limits
• [09:19] STR with Seller Occupancy: Effects
• [11:14] STR/REP/Material Participation Hours
• [15:56] Making Syndication Losses Active
• [18:56] Does Property Management Kill STR Loophole?
• [21:06] Paying Kids For Real Estate Work
• [22:43] Condo Depreciation Myths
• [24:23] Substantial Services for Medium-Term Rentals
• [27:48] Year-End Preparation Musts
• [29:37]/[31:34] Should You Rush Year-End Deals or Wait?

Final Takeaways

• Material participation and documentation are everything in STR/REP strategies: Without proper evidence and hour tracking, you lose critical tax benefits.
• Using property management almost always disqualifies you from the STR loophole—at least for that tax year.
• Don’t panic at year end: Thoughtful, long-term planning beats rushed, last-minute moves every time.
• Always verify advice: If a CPA tells you something contrary to established IRS rules (like skipping depreciation), get a second opinion.
• Check the show notes: The hosts repeatedly mention a downloadable “Year-End Tax Checklist.”

For further information and more resources, visit:
www.TheRealEstateCPA.com/Podcast